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Section 148 Validity: SC Judgement & Its Impact Explained

Section 148 Validity: SC Judgement & Its Impact Explained

Is your Notice of Section 148 Valid? Will Supreme Court’s Landmark Judgement on ‘Section 148 notices’ in the case of Ashish Aggarwal make them Valid?

Do you know the background of the controversy?

In Finance Bill 2021, the government proposed an amendment in the reassessment proceedings under Section 148 of the Income-Tax Act, 1961, which later became part of the Act.

As a consequence of this amendment, Section 148A was introduced, highlighting the.

The provision that the Income Tax Officer provides a chance for the taxpayer to explain their case before issuing notice if they decide to initiate assessment/reassessment u/s 148.

Hereby the assessee gets a chance to be heard by the officer.

A limitation of the period was amended for issuing notices concerning opening past years’ assessment cases to three years from six years.

The said new Section 147, 148 148A, 149, 150 and 151 were enacted from 1st April, 2021.

However, it was noteworthy that the timeline to issue notices under the erstwhile section 148 for the AY -2015-16— was 31 March, 2020.

However, in the wake of Covid-19, the said due date was extended by various notifications to 31 March 2021 and then further to 30 June, 2021 before the amendment was introduced in Finance Act 2021.

From 1st April 2021 to 30 June, 2021 department issued notices to thousands of taxpayers under the erstwhile section 148 to initiate the reassessment proceedings for income escaping assessments.

What are the High Courts of the country saying on these notices received by assessees u/s 148 ?

Consequently, to these notices, the taxpayers knocked on the door of High Courts because the validity of the assessment/reassessment notices issued to them under erstwhile section 148 of the Act is challenged.

Most of the Hon’ble High Courts, including the Rajasthan HC, Delhi HC, Calcutta HC, Madras HC, Allahabad HC, and Bombay HC, held that Taxation & Other Laws (Relaxation & Amendment of Certain Provisions) Act, 2020 does not empower the revenue to extend the time limit of application of the old reassessment regime beyond March 31, 2021, when as the Finance Act, 2021 introduced a new scheme of reassessment w.e.f. April 1, 2021.

However, the Hon’ble Hight Court of Chhattisgarh had a different view in the case of Palak Khatuja vs UOI.

Did Hon’ble Supreme Court quash High Court Decisions?

In the case of the UOI & ORS vs ASHISH AGGARWAL, the department appealed against the High Court of Allahabad’s order in the aforesaid case, and the Hon’ble Supreme Court Justices MR Shah and BV Nagarathna gave various directions concerning UOI & ORS vs Ashish Aggarwal and Ashok Kumar Agarwal vs UOI cases on the similar issue vide order dated April 19, 2022 (Civil appeal no. 3005/2022) which had quashed reassessment notices issued by the Department of Revenue, within the Ministry of Finance, after 1 April 2021 under unamended section 148 of the Income Tax Act (IT Act).

By using the powers under Article 142, which states that any decree or order passed by the Supreme Court to do complete justice was enforceable throughout the territory of India, the Honourable Supreme Court overturned the orders of the respective High Courts and passed the order with the following directions –

  • The respective impugned section 148 notices issued to the respective assesses shall be deemed issued under 148A of the Income Tax Act. 
  • The said notices should be treated as show-cause notices in terms of said section.
  • Assessing officers shall, within 30 days from the date of the impugned judgement, provide the assesses with the information and material relied upon by the revenue. 
  • The assesses can reply to notices within 2 weeks thereafter.
  • Prior approval required for conducting any enquiry will be a one-time measure.
  • The assessing officers shall thereafter pass an order expressing their positive or negative view for issuing the notice under sec 148.
  • All the defences available to the assessee under respective laws and whatever rights are available to the AO are kept open and shall continue to be available.

What is the conclusion?

As the apex court’s decision favoured the Income Tax department, i.e., the period of sending notices has now become 3 from 6 years as it used to be.

The introduction of 148A can be a game changer to achieve the ultimate objective of simplifying the taxation regime, ease in compliance and reduce litigation OR just another mode to increase corruption.

We will have to see how it plays out for the industry in the years to come.

Such a landmark decision will lead to consequences you may not be aware of, but there is no reason to make it worrisome for you at all!!

Because you have MASTER BRAINS! Our Income Tax Consultants have years of experience in dealing with cases of 148 and have been the first movers in filing appeals under cases opened under 148A.

Contact +91 8595867402 to get a quote for your case, and do follow us on social media at

https://heylink.me/masterbrains/.

FAQs on Is your Notice of Section 148 Valid?

What is the difference between the old and new assessment/reassessment regimes?

The old assessment/reassessment provision allowed the department to issue notices under Section 148 for six years from the end of the relevant assessment year. However, the new assessment/reassessment provision has reduced the period for issuing notices to three years under Section 148A (w.r.f April 1, 2021) and allows the taxpayer to be heard by the officer before the notice u/s 148 is issued.

What are the implications of the Supreme Court's decision for taxpayers who have received notices under Section 148?

Taxpayers who have received notices under Section 148 must now treat these notices as issued under Section 148A, which allows them to respond and provide necessary explanations after receiving the information and material relied upon by the revenue. The assessing officers must also pass an order expressing their positive or negative view for issuing the notice under Section 148 and initiating the assessment/reassessment proceedings u/s 148.

How can taxpayers defend themselves against a notice under Section 148 or 148A?

If a taxpayer has received a notice u/s 148 or 148A or under any other section of Income Tax, the best way forward would be to engage an experienced Income Tax Consultant who will help the taxpayer to navigate the litigation process and assist them in drafting replies to notices, filing these replies, representing before income tax authorities and drafting and filing appeal against an unfavourable order before commissioner appeals & ITAT. Understanding the rights and defenses available under the law is essential to ensure the best possible outcome in such cases.

Can a taxpayer challenge the validity of a notice received under Section 148 or 148A?

Yes, a taxpayer can challenge the validity of a notice received under Section 148 or 148A. The challenge can be based on procedural grounds, such as the notice being issued beyond the prescribed time limit or without proper authority, or on substantive grounds, such as the notice being based on incorrect facts or assumptions. However, taxpayers don’t have to fight all by themselves, experienced income tax consultants can guide them with the best approach to challenge the notice and represent the taxpayer before the Income Tax Department.

How does the introduction of Section 148A impact the overall taxation regime and ease of compliance for taxpayers?

The introduction of Section 148A aims to simplify the taxation regime and improve compliance by allowing taxpayers to give an explanation of why they should not receive an assessment/reassessment notice. This new provision is brought with an intent to reduce litigation and make the faceless assessment/reassessment process more transparent and fair. However, its impact on reducing corruption or increasing ease of compliance remains to be seen, as it depends on the implementation and enforcement of the provision by tax authorities.

What are the potential consequences of not responding to a notice under Section 148A on time?

If the assessee is unable to respond u/s 148A then the tax authorities may proceed to pass an unfavourable order without even considering the taxpayer’s explanation or defense. Post this the case goes under faceless assessment/reassessment as per the provisions of section 148. Taxpayers must respond promptly and adequately to such notices to avoid unfavourable outcomes and protect their rights.

How to check whether you have received any notices or have any outstanding demands from the Income Tax Department?

 Follow these steps to check show cause notices received from Income Tax Department, on the Income Tax e-Filing portal:

  1. Visit the Income Tax e-Filing portal: https://www.incometaxindiaefiling.gov.in
  2. Log in using your user ID (typically your PAN), password, and captcha code.
  3. Once logged in, go to the “e-File” tab on the dashboard.
  4. In the dropdown menu, click on “View Notices/Orders.”
  5. You will now see a list of notices or orders, if any, issued by the Income Tax Department.

 

To check outstanding demands, follow these steps:

  1. Follow steps 1 & 2 above and then from the dashboard, go to the “Services” tab.
  2. In the dropdown menu, click on “View Outstanding Tax Demand.”
  3. You will now see the details of any outstanding tax demand, if any, against your PAN.
What is the difference between upholding and quashing an order?

‘Upholding an order’ means when a higher authority or court confirms, supports, or validates the decision made by the lower court or authority, it is said to have “upheld” the order. In this case, the original decision remains in force and is considered legally enforceable.


‘Quashing an order’ means when a higher authority or court overturns, invalidates, or cancels the decision made by the lower court or authority, it is said to have “quashed” the order. In this case, the original decision is considered legally incorrect and no longer in force.

What is the timeline for responding to a notice under Section 148A?

After being issued a notice under Section 148A, the taxpayer must explain within the time specified in the notice (it cannot be less than seven days and cannot be more than 30 days, practically officers give 7 days only). Responding promptly and providing all relevant information is important to avoid any adverse consequences such as interest, fine, prosecution or penalties. The officer is bound to pass an order within one month from the end of the month in which the reply is received or time to reply expires.

In what cases, provisions of section 148A - conducting inquiry, providing opportunity before issue of notice under section 148, are not applicable?
  1. Section 148A is not applicable in the following cases – 
  1. Income Tax Search Case is initiated u/s 132 or books etc. are requisitioned u/s 132A
  2. The Assessing Officer is satisfied with prior approval of PCIT or CIT that any money, bullions, jewellery etc. seized in search or requisition in another person’s case belong to assessee.
  3. The Assessing Officer is satisfied with prior approval of PCIT or CIT that books or documents seized in search or requisition in another person’s case pertains to assessee.
  4. The Assessing Officer has received any information under scheme notified u/s 135A pertaining to income chargeable to tax escaping assessment for any AY in the case of the assessee.

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